India’s Sensex Has Second-Worst Year on Europe Crisis, Rates

Dec. 30 (Bloomberg) -- India’s benchmark stock index
dropped, capping its second-worst yearly loss as the debt crisis
in Europe and the biggest series of interest-rate increases on
record hurt corporate earnings and curbed growth.

Reliance Industries Ltd., the owner of the world’s largest
refining complex, plunged to its lowest level since March 2009.
Hindalco Industries Ltd., an aluminum producer that controls
U.S.-based Novelis Inc., lost 1.2 percent, extending the year’s
drop to 53 percent, making it the worst performer on the
benchmark gauge.

The BSE India Sensitive Index, or Sensex, fell 0.6 percent
to 15,454.92 at the 3:30 p.m. close in Mumbai. The gauge has
slumped 25 percent in 2011 on concern a weakening rupee,
accelerating inflation and interest-rate increases would
compound the effects of the European crisis on corporate
profits. Foreign investors have pulled out $380 million from the
nation’s equities this year, compared with a record inflow of
$29 billion last year.

“The Indian market has suffered from a number of negative
headwinds,” Robert John Parker, a senior adviser at Credit
Suisse Asset Management, said in an interview with Bloomberg UTV
today. “The level of inflation has stayed elevated and that has
prevented any monetary easing by the Reserve bank of India.”

Reliance Drops

Earnings forecasts for Sensex companies for the year ending
in March 2012 have fallen 8.7 percent to 1,150 rupees per share,
the biggest drop since the 12 months ended March 2009, according
to about 1,500 estimates compiled by Bloomberg.

The Sensex lost 4.2 percent this month, its first drop in
any December since 2001. The S&P CNX Nifty Index on the National
Stock Exchange of India Ltd. lost 0.5 percent to 4,624.30, while
the BSE 200 Index fell 0.4 percent.

DLF Ltd., the biggest developer, fell 1.9 percent to 183.1
rupees. Tata Steel Ltd., the biggest producer of the alloy, also
declined 1.9 percent, to 335.35 rupees, its lowest level since
May 2009.

The 30-stock Sensex trades at 13.5 times estimated profits,
down from 21.5 times in March 2010. The MSCI Emerging Markets
Index is valued at 10 times after dropping 21 percent this year.

Borrowing Costs

With inflation at more than 9 percent for the past 12
months, the Reserve Bank of India increased its benchmark
interest rate 375 basis points to 8.5 percent in 13 moves since
March 2010.

Higher borrowing costs slowed expansion in India’s $1.7
trillion economy, Asia’s third-largest, to 6.9 percent in the
three months to September, the slowest growth in more than two
years. Industrial production fell 5.1 percent in October from a
year earlier, the first decline since 2009, according to
statistics office data on Dec. 12.

Finance Minister Pranab Mukherjee is seeking ways to narrow
the budget deficit, having raised just 3 percent of a 400
billion-rupee asset-sale target for the year ending March 31.
The budget shortfall in the seven months through October was
74.4 percent of the annual goal, according to the Controller
General of Accounts. Revenue collections were 45.5 percent of
the full-year target compared with 65.5 percent of the annual
target in the same period last year.

Account Deficit

India’s current-account deficit may have widened to a
record in the three months ended Sept. 30, a central-bank report
may show today. The deficit reached an unprecedented $17
billion, according to the median estimate of nine economists
surveyed by Bloomberg. That compares with $14.1 billion in the
previous quarter.

Shrinking that gap “will not be easy” as a cooling
economy curbs tax collections and a slump in stocks stalls plans
to sell stakes in state-run companies, the finance ministry said
this month.

Overseas borrowing by Indian companies slumped to the
lowest level since June 2010 this quarter, according to data
compiled by Bloomberg, as an economic slowdown and rising costs
to fund in dollars threaten the nation’s $1 trillion plan to
build roads and ports.

Parliamentary gridlock, high inflation, a widening budget
deficit and slowing economic growth have sent the rupee tumbling
16 percent this year, making it the worst-performing currency in
Asia, hurting Indian companies that have a record $11.4 billion
of dollar bonds to repay in 2012. The debt coming due next year
is double the five-year average of $5.6 billion, data compiled
by Bloomberg show.

A weak rupee also boosts import prices in a country that
imports 80 percent of its fuel. The currency lost 0.5 percent to
53.3 per dollar at 3:41 p.m. in Mumbai.

“Currency weakness reflects the fact that capital is not
coming into the Indian market,” Credit Suisse’s Parker said.
“I am not looking for a great first quarter.”